You may have seen my earlier post about renting appts and be confused about why I am now asking about buying? Well, coming from UK where the property market (in London at least) is certainly in decline, we have been asking ourselves about prospects for the market in Spain. Should we rent, wait for a market "adjustment" and then buy, or jump in and buy now?

At the moment we believe we should wait and rent for now. This is based on the following assumptions and facts. Apparently there is over-supply in the Spanish market overall, mortgage borrowing is way too high in Spain in relation to income thereby leaving people very exposed to interest rate rises and signs are that prices may already be falling. Speaking to people in other parts of Spain who have had appts for sale for a while, they are simply not selling. This usually means prices will have to fall to adjust to lower demand.

If Euro interest rates rise over the next year or two, which I guess they may do as economies pick up, then this will compound the problems in Spain. Can any of you guys help us on this - its tough to know what to do - jump in and buy soon or hold back and strike when the market has taken a hit.

Your views and opinions are all appreciated.

From my perspective (having spent the last 12 years living in a big US city), renting is a much better deal than buying right now in Madrid. The rents seem very affordable to me, while the buying costs seem really, really high. A mortgage payment (assuming you don't put a lot down) could easily be double what it costs to rent a similar place. I just don't get it! Can anyone explain this to me?

Thx Mariposita (little butterfly - right?!! Knew those Spanish lessons would pay off some day!!). I wouldn't even mind paying more if I thought that prices were going to hold up and my asset maintains or grows in value - that's the issue.

I guess what you say bears out to some extent what I said. Its all about basic supply and demand. Lets assume property prices in Madrid are still over-inflated because people have been encouraged to borrow multiples of their income that make no sense, thus fuelling the enormous property boom of the last few years. Property developers, companies and individuals with property-based investment portfolios have had to keep rents down in order to ensure they get some sort of income on their properties, as over-supply means people can shop around. I've been told that nobody in the press or media talks about falling prices in Spain because those who have invested in property know just how precarious the situation is. They are probably right to be nervous. We know how talk of a falling market can become a self-fulfilling prophesy. To some extent that has happened here in London.

The big differences here are long term structural housing shortages and other economic factors like a very strong economy and low unemployment. These will always underpin a strong long term housing market. But in short/medium term there has been over supply in the rental market because so many people bought to rent in the last few years. In the last year or two they have had to accept lower rents just to ensure some income. They all want to keep hold of their property because they know that long-term, despite any short-term fall in property prices and rentals, there is a basic under-supply. I've also been told that whilst advertised prices in Spain may not be falling the actual prices achieved on property sales is a rather different matter. Anybody want to support or contradict this?

Thats a long answer to your question, Mariposita but I hope it may explain what is happening there. Or maybe I am COMPLETELY wrong!!

Be careful about mixing "anglo-saxon" economics and Spain. Would you think that the UK would stand an unemployment rate over 20% for several years as Spain did? Where family mixes with economics in Spain, you may get to wrong conclusions using "anglo-saxon truths": not only state aid, but families helped, and help those unemployed, as will help those with problems getting a house. One of the reasons I am working in Brussels is because I could not afford an appartment in Madrid, but people earning as little as I did in Madrid were buying. How could they do so? Don't ask me for the answers, since I would probably be in Madrid now. One usual source of financing are parents (resource I did not want to use, and which I do not know whether would be able to help, but that some "children" are not reluctant to ask, and accept, this "help"), and I guess there might be others. And if you want to stick to "usual" economics, then go to the "History of Economics": can you find any sharp drop of prices in land or houses anywhere? Land is always a limited resourse. If you know it, let me know,... as an economist, I feel I should improve my knowledge ;-) So, if you are optimistic (like I am), just expect not so sharp increases in prices as in the last few years (if I recall it rightly, well over 15% for several years), but always a little bit over the inflation rate.

... And always keep in mind Spaniards' preference for buying and not renting, which is not matched by any country in Europe (I cannot quote any exact reference, but this is not guessing, is a fact), though it has began to have its followers (due to price increases all around Europe).

Thx Max - great answer. Of course, my answer is an "Anglo-Saxon" and I am aware that things can be very different between UK and Spain. Its interesting what you say about families helping - its something that I do'n't think happens that much here - maybe only the well-off do it. But I understand that many Spanish people continue to live at home well into their 20's or even 30s until they marry. Consequently I suppose they have a good opportunity to save even if their incomes are not so good (Maybe this explains why parents also help them out - want to get rid of them!) Here in UK many people leave home when they leave school at 18 or when they finish university. They then rent for years until eventually they get a job that pays enough to get a mortgage. Often they have little in the way of a deposit.

Anyway - thx for your useful feedback

Hate to say, I told you so!! (Actually I LOVE saying that, but thats cos I never did buy here!)

http://money.uk.msn.com/Investing/Insight/Special_Featu...p-documentid=4839002

Hate to say it Nearly 3 years after the last post I am sure you can!!!!!!!

GOD do i hope the bottom drops out of the market so i can finally afford to buy something

with the last euribor hike, a family with the average mortgage of 150,000 euros will have to scrape to find another 88 euros per month to pay the bank.

and that is the 4th hike this year. as you can imagine, families that just barely make it to the end of the month are freakin out

saludos,
jer...

wow three years ago people were saying that, show's how long bubles take to burst! I think part of the reason people buy rather than own is the rent eseclator. We haven't been renting a year yet (been here a year but 7 months in temp accomdations) but from what I've heard rents jump 40-50 a year (5% or so) that means in three years I'll be paying 1100. Ouch. It is almost impossible to get anything under 800 but 950 seems to be average (for an anparment)

I have been doing some checking and if you go to the right area prices are generally much lower. south of the city you'll find prices starting at around 200.000 vs 350.000 plus in the city and over 400.000 in Tres Cantos. Arganda del Rey for example prices seem lower than the rest, they metro but at the very far end. Prices also declined there for the first time ever last month.

yes, rent is going up.

the only reason we still rent here in the plaza is because we have a SWEEEEEET deal at 675 a month for a beautiful 100 m2 apt. in the plaza mayor.

in the 6 years we have been here rent has only gone up 75 euros a month.

with a deal like this is is hard to leave and jump into what would surely be a 2,000 euro a month mortgage to buy something smaller and half as nice

saludos,
jer...

quote:

the only reason we still rent here in the plaza is because we have a SWEEEEEET deal at 675 a month for a beautiful 100 m2 apt. in the plaza mayor.

I know it's a little off topic, but... how is Ena holding up with all those stairs in her pregnant state? It's only going to get more difficult!

Coming from someone who lived in a 3rd floor walk-up until after the baby was born, I feel for her.

hey Chica.

good question.

well, so far so good.

to her advantage we have built-in seets on just about every floor (built into the wall).

people who know our apt. have asked about the same (pregnancy, living here with the baby, etc...) but if you think about it, some of our neighbors have kids and have been here for 20+ years.

- upstairs neighbors (yes, there is another floor above ours ) have 2 kids each. one family has teenagers and the other has a 5 and 7 year old.

- neighbors in front of us have a 13 year old.

so, that is 3 moms who did the stairs pregnant and liked it so much that 2 of them did it again

we also have the baby stroller thing worked out as there is a storeroom downstairs in the entry to the building. plan on folding the stroller and leaving it there because that WOULD kill us to have to lug it up and down the stairs every time we go out with the wee one.

may even leave the little one in that room too

saludos,
jer...

back on topic

Substitute Spain for America and this is what it's going to look like in a year or two particularly in the south where it's over built. It’s just a matter of time before you start seeing panicking speculators desperate to get rid of places they can’t afford. Multiply that by flattening house prices and you can see big problems coming.

http://tinyurl.com/35laqr

In Spain they are currently building 100% more apartments than demand. In other words there's demand for 400.000 new apartments per year but 800.000 per year are being built. I don't think Madrid will be hit quite as hard perhaps a 10% decline vs a horrible 30% plus decline in the south. Even though Spain has made a lot progress in diversifying their economy it is still way too dependant on housing and tourist. It’s good news for anyone wanting to buy a house but missed out on the big price increases. Unfortunately houses will only increase at the rate of inflation if at all.

Chris and I had made a decision to stay in Madrid (wasn't a hard decision) so that means we should really look at buying a place. Our price range is around the 250.000 mark (anyone know of any online calculators or what current interest rates are) If you flexible on where you live you have a good chance of finding something reasonable. We’re leaning towards one of the burbs. I really like Tres Cantos but way too pricey.

Idealista has an excellent built in calculator where you can contol all of the variables:

http://www.idealista.com/pagina/hipotecas

Tim,

Have you looked at Monetcarmelo. It's still in Zone A and hasn't gotten that expensive just yet.

Just a thought.

Shawn